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Supply- How much of a good will be supplied at a particular price. Demand- How much of a good will be demanded at a particular price. Equilibrium price- The price at which the producer is willing to sell their product and the price at which consumers will buy them. Substitute goods- Goods that can be used in place of one another. Ex: McDonald’s & Burger King, Margarine & Butter Complimentary goods- Goods that work together. Ex: DVD & DVD Player, Computer & Software, Baseball glove & Ball Personal income- All of the money received by a household. Disposable income- Income that is left after paying taxes. This is spent on out needs. Ex: Mortgage Discretionary income- Income that is leftover after meeting our needs. This may be spent on our wants. Ex: ipods Shortage- When demand for a good exceeds supply. Surplus- When the supply of a good exceeds demand. Inflation- A general rise in prices. Interest rate- The amount of money paid to a lender in exchange for the use of the lenders money. Ex: Mortgage, credit cards What three elements depend on one another for economic interdependance? What role do households play in the economy? What role do firms play in the economy? What role does the government play in the economy? What type of economic system does the Island of Mocha have? In the circular flow of the economy in which market do people sell their labor? 1. What are the 3 major economic actors in the U.S. economy? Gov’t, market, entrepreneurs B. Land, labor, capital C. Households, businesses, gov’t D. Consumers, producers, businesses A. 2. The fact that these 3 actors need each other in order for the economy to function smoothly is referred to as what? A. B. C. D. Circular reliance Economic need Economic interdependence Product and factor markets Supply How much a certain good is available to consumers. As price increases…supply is increased Demand How much consumers want the particular good. As price decreases…demand increases Law of Supply and Demand Producers will only supply a product that will… Make a profit Consumers will only demand a product for which they need or want at a price they can afford. Supply will be determined by what is demanded. Producers will supply goods as long as they can make a profit. • Supply curve (supply schedule) – Shows how much of the product that sellers are willing to sell at various price levels. Demand • Demand curve (demand schedule) – Shows how much of the product buyers are willing to purchase at various price levels. Price • Equilibrium (market) price The point at which the supply and demand curves meet. – The price at which producers are willing to sell their products and the price at which consumers will buy those products. – Supply Quantity Personal income Disposable income All of the money received by a household All of the income a household has after paying taxes. Spent on needs (mortgage, electrical bills) Discretionary income The income left after paying for “necessities” . Spent on our wants Impacts supply and demand The more suppliers there are, the more options for consumers. The more options for consumers, the more producers must compete for business. In order to compete, producers must either lower prices while still making a profit, or quit producing the good. Substitute goods Goods that can be used in place of other goods. Ex: McDonald’s, Burger King, & Wendy’s Increases competition Complimentary goods Goods that work together to fulfill a certain need. Ex: DVDs and DVD players are both useless unless used together. 1. When what is produced will be determined by what consumers want, provided they are willing to pay enough is called what? A. B. C. D. 2. The market The law of demand The law of supply and demand The influence of disposable income The price at which total supply equals total demand it known as what? A. B. C. D. The middle price The consumer price Consumer demand Equilibrium price On the island of Mocha, what was caused by the storm and the war? What is a shortage? Shortage of wood When there is not enough of a product What is a surplus? When there is too much of a product Shortage When supply of a good falls short of the demand. A price below equilibrium Price Demand Surplus results in a shortage Prices increase Surplus When supply of a good exceeds the demand. Shortage A price above equilibrium results in a surplus. Prices decrease Supply Quantity Consumer tastes refers to individual consumers’ preferences. What is desirable to one consumer may not be desirable to another. Inflation A general rise in prices for products. Deflation A general fall in prices for products. Gasoline Stagflation When prices rise and employment/wages fall at the same time. Interest rates The amount paid to a lender in exchange for the use of that lender’s money. Higher interest rates = save Low interest rates = spend Minimum wage Price floors Minimum price below which the price of a good is not permitted to drop. Price ceilings Supporters argue that anything less would not provide an adequate standard of living. Opponents argue that it creates a surplus of labor that leaves many unemployed. Maximum price above which the price of a good is not permitted to rise. Fiscal policy Deficit spending (FDR) Supply-side economics (Reagan) Cut corporate taxes so that businesses can have more money to spend on production and labor. “Trickle down effect” SUMMARIZE THE LAW OF SUPPLY AND DEMAND. WHAT IS THE EQUILIBRIUM PRICE? WHAT ARE SOME OF THE INFLUENCES ON SUPPLY AND DEMAND? HOW DOES COMPETITION IMPACT SUPPLY AND DEMAND? SUMMARIZE DIFFERENCE B/W SUBSTITUTE GOODS AND COMPLIMENTARY GOODS WHAT FACTORS AFFECT PRICES? WHAT IS THE DIFFERENCE BETWEE N INFLATION AND DEFLATION? HOW DO INTEREST RATES IMPACT PRICES? HOW DOES THE GOVERNMENT IMPACT PRICES? What is the Equilibrium Price? The Equilibrium Price is the price producers sell their product and the price consumers pay for the product. Using pictures from the magazines and what you just learned create a collage of complimentary and substitute goods. Divide your poster board in half to separate each type of good. Answer the following question on your collage: What will happen to demand if the price rises for a substitute/complimentary good?
